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April 13, 2012

JPMorgan, Wells Fargo Beat Views as Q1 Earnings Season Kicks Off

JPM profits dropped 3.1% but WFC’s rose 13%; both stocks fall Friday

JPMorgan Chase CEO Jamie Dimon (Photo: AP)

The finance sector on Friday launched the first-quarter 2012 earnings season with unexpectedly good results from some of the nation’s big banks, as JPMorgan Chase reported better-than-expected earnings per share, and Wells Fargo posted a 13% rise in net income.

Compared with Wells’ overall positive performance, JPMorgan experienced more mixed results for the quarter. Its stock after the earnings release was down $1.17 per share or 2.61% in early afternoon trading, at $43.67 versus Thursday’s close of $44.84. Wells Fargo (WFC) stock was down $0.68, or 2%, at $33.34 versus the previous close of $34.02.

JPMorgan (JPM) reported EPS of $1.31 compared with $1.28 at the same time last year. The bank’s profits dropped 3.1%, to $5.4 billion from $5.6 billion, with that difference in net income due to legal expenses, debt charges and $15 billion in stock buybacks that reduced the bank’s outstanding shares by 4%. Analysts had predicted that JPMorgan would earn just $1.15 per share in the first quarter.

Revenues of $26.7 billion were 6% higher than a year ago and 24% higher than 4Q 2011, with JPMorgan citing solid performance across most businesses, with particular strength in the investment bank and improvement in mortgage applications. Investment bank profits shot up 132% for the quarter, at $1.7 billion versus $726 million in 4Q, though they were 29% lower than the $2.4 billion reported a year ago. Retail profits stood at $1.8 billion versus a loss of $399 million last year due to a $2.3 billion increase in mortgage fees that were partly offset by lower debit card revenue.

“While several significant items affected our results, overall, the firm’s performance in the first quarter was solid,” said JPMorgan chairman and chief executive Jamie Dimon in a statement. Dimon added that the bank’s “fortress” balance sheet and earnings power allowed for a $1.20 per share annual dividend along with the share buyback program.

J.P. Morgan Asset Management Profits Dropped 17%

The asset management unit’s profits decreased $80 million to $386 million, down 17% from the prior year, reflecting higher noninterest expense and lower net revenues of $2.4 billion, down $36 million, or 1%. However, assets under supervision were reported at a record $2.0 trillion, 6% higher than a year ago, and assets under management were a record $1.4 trillion, 4% higher. Both increases were due to net inflows to long-term products and higher market levels.

Wells, which reported earlier than usual because its results were so strong, saw profits rise to $4.3 billion from last year’s $3.8 billion, with EPS rising to $0.75 from $0.67 a year ago. Analyst consensus was for EPS of $0.73.

The overall bank’s revenues of $21.6 billion—up 6.4% from a year ago and the highest in nine quarters—got a boost from strong mortgage banking results. Wells is the largest mortgage holder in the United States, and the bank credited its $1 billion revenue increase over 4Q 2011 to growth in noninterest income, including strong mortgage banking and trading revenues, while net interest income remained stable.

Wells Fargo's mortgage banking noninterest income totaled $2.9 billion, up $506 million from the fourth quarter, on $129 billion of originations, compared with $120 billion of originations in the fourth quarter.

“Our continued performance for shareholders through a variety of economic environments is a testament to our diversified business model,” said Wells chairman and CEO John Stumpf in a statement. “The performance of our franchise also allowed us to provide our shareholders with an increased common stock dividend for the second consecutive year.”

Wells increased its quarterly common stock dividend rate 83% to $0.22 per share.

Wells Brokerage Client Assets Rose 6%

As for its brokerage unit, Wells saw a rise in assets and a drop in both financial advisors and income. The wealth, brokerage and retirement unit includes 15,134 financial advisors as of March 31. This figure is down 1% from last quarter and from last year, and includes 10,987 advisors in the traditional brokerage channel.

Client assets including deposits for the full unit were $1.4 trillion, of which $1.2 trillion are part of the retail-brokerage operations, a 6% increase from the previous quarter. Wealth, brokerage and retirement had net income of $296 million, a 5% drop from the earlier quarter and a 14% decline from the year-ago period.

Revenues for the unit grew 1% from 4Q, and excluding a gain from the sale of H.D. Vest in the fourth quarter, jumped 6%, the company said, thanks to higher retail brokerage asset-based fees, transaction revenues and securities fees.

Managed-account assets grew 10% from last quarter and 11% from last year, driven by strong net flows and market performance.